Wednesday, May 20, 2009

Trading Idea & Strategy: PSU major BHEL

Antriksh Patel has asked a query on L&T and its Prospects until its Results announcement. Presuming from his query that his investment perspective is only until Results announcement for the stock which is 35-45 days away from now, he seems to be having sight on the Short-term prospects of L&T until around Mid-July 2009.

Hi Viral,
I think L&T is slowly and gradually gaining momentum.
Till the results it can touch 1700. What is your say?

For this, I have presented an alternative for short-term trading purpose in a PSU stock - BHEL. In the current situation, L&T may be prone to a small downside before it makes fresh highs. The stock has jumped sharply from Rs.950 before election results were announced to Rs.1350 at today's closing. No doubt, the momentum is strong in the counter and it has shown amazing strength even in the last couple of day's of extreme volatility.

But, here is what i have to say for trading in BHEL and what strategy can be adopted to minimize the risk of trading in this counter with appropriate strategy to be used as follows:

Dear Antriksh,


L&T could be, indeed, one of the top contenders to benefit from renewed infrastructure spending that may likely be announced during the Union Budget some 35-45 days from now.

But, speaking in terms of price appreciation in last few days in L&T and BHEL, perhaps BHEL is a better contender to benefit from dual reason of Infrastructure & Power sector spending and also Disinvestment prospects in PSU stocks by the Central Government.

Also, L&T at today's closing has still not corrected substantially from its peaks since election rally. Whereas BHEL has given up half the gains witnessed post-election rally to till date as on today's Closing level of Rs.2040/-.

However, BHEL and L&T are both expensive seen in terms of Valuations. But, in short term one can play with BHEL by buying as per below mentioned strategy with view of 30-40 days holding period:

Suppose You wish to invest Rs.16000 for Short-term Trading:
Buy BHEL 5 shares @Rs.2040 (CMP)
Buy BHEL 3 shares @Rs.1850-1900 Range

Once you Buy the stock @Rs.2040, you need not worry whether the stock goes down or up in next few sessions. You can still average at lower levels until Rs.1850-1900 since you have staggered your trading amount of Rs.16000 into 2 parts of Rs.10,000 and Rs.6000.

If the stock goes up after buying the initial quantity of 5 shares @Rs.2040, no need to think about remaining quantity. At least, you have invested 60% of your amount & you'll be rewarded to that extent, even in times of high uncertainty in present times.

Trading Idea for BHEL :

Buy in 2 Tranches at Rs.2050 & Rs.1900
Target 1: Rs.2300
Target 2: Rs.2500
Stop Loss: Rs.1800 (Closing basis)
Time Frame: 30-45 days.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any nature for your trading and investment decisions and its consequent results.


Vikas said...

Hi Viral

I read few of your postings in last few days. You suggested that sell on Rise and Buy on Dips but now markets showing positive signs and most of the stocks going only in one direction(North), Now which stocks we should focus and invest in small quantities and what is your thoughts and action plan in the current scenario?

Awaiting reply

Viral Rajnikant Dholakia said...

Dear Vikas,

In this reply to your query, i am posting to you 3-4 different scenarios & strategies that you can adopt depending on which suits you best as per your profile.

Firstly, one must remember that stock markets will never be able to rise unilaterally for a long duration. No doubt, the momentum in the short-term may be sharp and north-ward in direction, but there is a limit to the upside.

In fact, more the markets will rise, more will be the valuations expensive. This will fasten the chances of a sharp pull back.

Than some consolidation & again north-ward journey to establish newer highs than even before, but this time with consolidation on its side.

Coming to my Strategies...

1) Buy in small Qty on Rise
2) Sell in small Qty on Dips

Right now... investors should adhere to 2nd Strategy of 'Sell in Small Qty on Rise'. Like, for example, markets have unilaterally risen from Sensex 8000 levels to 14000 levels.

This has ensured that valuations of most stocks, especially, Large-caps are no more in the 'Comfort Zone'. Sell such Large-caps to the extent of 10-15% of portfolio and wait in Cash. The 'wait' may be for long (if markets dont correct soon), but it would be worthwhile when markets come down.

In effect, investors should try balancing their portfolio depending upon the situation. Like for example, either they should liquidate some 15-20% of Large-cap portfolio and remain in cash OR shift to mid-caps which were largely under-performing in recent rally. Those mid-caps have slowly started picking steam in last couple of sessions.

So, Selling should be done in small quantity in Large-caps & a shift towards mouth-watering Mid-caps can be opted as a choise depending upon the investor's Risk profile.

Another option would be...

Liquidate a part of the Large-cap portfolio & Shift into stocks/sectors which may offer better prospects of appreciation based on nearest events like Budget, Results, etc. Though, this would sound like a Trading bet. So, traders can play in such a way.

One more thing....

Liquidating of portfolio, even in large-caps, is not recommended in a big way. But, a good small 15-20%would provide a reasonable cushion if markets retracts a bit on the downside.

Viral Rajnikant Dholakia said...

One Major Advantage of using the Strategy of 'Selling in Small Qty on Rise' is...

You sell 10-20% of portfolio rise. In return, you accumulate that much amount of 'Cash' which in turn could be deployed when markets fall at a later duration.

Now, suppose the markets keep on rising, even after your selling 10-20% of portfolio... you still tend to benefit more from the remaining majority part of the invested portfolio which is to the extent of 80-90%.

Now, suppose markets further keep on rising... You sell another 15% of portfolio, bringing your tally of portfolio sold to 25-30%. But, even still you remain largely invested to the extent of 60-70%.

At some point, markets will retract sharply (especially after such unilateral rise) & at that time you can deploy the cash accumulated from selling at higher levels.

Quite possibly, you will make good bargain buying at such time when other are fully invested. If not, atleast your losses would be recouped which you lost on markets sharp rise after you sold.

The idea is to benefit in a Small but a substantial manner with not much of RISK & still ride the momentum on any side that markets prefers to stay on.Make hay on both sides- up and down. Patience will be tested during such times, if you pass through the test, you win.

Shalu said...

Hi Viral, can you pls shed some light on which midcaps can be accumulated for long term at current valuations. Thanks

Viral Rajnikant Dholakia said...

Dear Shalu,

I have been writing on value mid-caps time and again. A little more than a month back i had written about my 'Favouite' Mid-caps to choose from. More recently, i had written about 3 Value mid-caps.

Now, most of the mid-caps have appreciated substantially. The calls should have been taken at right when i wrote about them on the blog.

Anyways, mid-caps can have much more in them to appreciate even from here looking at the under-peformance in terms of 'Valuations' vis-a-vis Large-cap counters.

Antriksh Patel said...

Hi Viral,

Thanks. Your guidance has been very effective.



jamesvaikom said...

I think now even mid caps start showing some weakness. I think it is time to book profit even in mid caps and sit on cash. I think buy on dips after strong rally may be like catching falling knife. what is your view.